Pharma Giants Face Revenue Risks as Patent Cliffs Loom for Blockbuster Drugs

💬 STOCKS MENTIONED: $BMY, $MRK, $JNJ

📝 SUMMARY: Pharmaceutical giants Bristol Myers Squibb ($BMY), Merck ($MRK), and Johnson & Johnson ($JNJ) are bracing for significant revenue losses due to upcoming patent expirations on blockbuster drugs, a phenomenon known as 'patent cliffs.' By 2030, these expirations could put tens of billions of dollars in sales at risk as it allows competitors to introduce lower-priced copycat drugs. This scenario often results in reduced revenues for original drugmakers but cost benefits for patients who gain access to more affordable options.

However, some companies are proactively preparing to offset these losses. They're focusing on building robust drug pipelines and engaging in acquisitions or partnerships, as per Wall Street analysts. The approach varies among companies, with the impact depending on their reliance on the expiring drug and its treatment type. Furthermore, the Biden administration's Medicare drug price negotiations could exacerbate revenue threats.

The top 20 biopharma companies face $180 billion in sales at risk from patent expirations by 2028. While the impact of patent cliffs varies, most large biopharma companies have substantial revenue holes to plug. The type of drug losing patent protection also matters, with biologics like Merck’s Keytruda, J&J’s Stelara, and Bristol Myers Squibb’s Opdivo facing patent expirations soon. Biosimilars, unlike generics, are not identical to their biologic counterparts and are more complex and costly to produce, which could slow their market penetration.

Investors will get insights into Merck and Bristol Myers Squibb’s strategies during their earnings reports. JPMorgan sees the impending patent cliffs as "largely manageable," expecting stable biopharmaceutical industry sales through 2030. Merck, for instance, is enhancing its post-Keytruda patent expiration profile, focusing on oncology drugs and a personalized cancer vaccine developed with Moderna. Bristol Myers Squibb is also advancing its pipeline, recently acquiring Karuna Therapeutics for $14 billion. J&J, meanwhile, is balancing its portfolio with its growing medical devices business.

To mitigate revenue loss, pharma companies are exploring ways to delay competition and extend patent protections. For example, Merck and Bristol Myers Squibb are developing new forms of Keytruda and Opdivo, respectively, potentially extending market exclusivity. J&J is addressing its Stelara patent expiration differently, settling lawsuits to delay biosimilar competition.

Lastly, Medicare drug price negotiations under the Inflation Reduction Act pose an additional challenge. These negotiations could impact revenues, especially for drugs losing exclusivity around the same time the new prices take effect. The true impact on pharmaceutical revenues remains to be seen as the industry navigates these upcoming challenges.

🔍 SOURCE: https://www.cnbc.com/2024/01/28/big-pharma-merck-bristol-myers-jj-prepare-to-lose-revenue.html